Low Carbon Economy, 2012, 3, 39-48
http://dx.doi.org/10.4236/lce.2012.32006 Published Online June 2012 (http://www.SciRP.org/journal/lce)
39
Economic Impacts of Climate Change on Secondary
Activities: A Literature Review
Surender Kumar1, Amsalu W. Yalew2
1
Department of Business Economics, South Campus, University of Delhi, New Delhi, India; 2Economics Program, Debre Berhan
University, Debre Berhan, Ethiopia.
Email: {surender672, amsalueth}@gmail.com
Received March 2nd, 2012; revised May 1st, 2012; accepted May 8th, 2012
ABSTRACT
The fast growing literature on economic impacts of climate change is inclined to assessing the impacts on agricultural
production and productivity and on human health. The economic impacts of climate change however, go beyond these
sectors. In this paper, we attempted to review the scarcely available literature on the economic impacts of the change in
the climate of the earth on some selected non-agricultural secondary and tertiary level of economic activities. It is attempted to summarize the ways through which the climate change can affect non-agriculture economic activities. The
discussion on the literature can be synthesized as showing the impacts on secondary and tertiary level of economic activities are wide and complex and eventually may be larger than on the impacts on agriculture for those middle and
high-income countries where the share of agriculture in national GDP is low.
Keywords: Climate Change; Economic Impacts of Climate Change; Non-Agriculture Industries; Manufacturing Sector;
Repercussion Effects; Labor Productivity
1. Introduction
Climate change is unequivocal [1]. The change alters all
sustainable development dimensions (i.e. economic, social, and environmental), and hence the potential development path ways [2,3] for a given nation or region. It
even is claimed that climate change to be the “mother” of
all problems to show its irreversible impacts [4]. The set
of mechanisms in which climate change affects economic
and environmental outcomes are too vast and complex to
investigate comprehensively. Therefore, it is intellectually daunting to deal with it [4].
Partially because of its bio-physical dependence on the
two metrological variables, precipitation and temperature,
among others, and partially due to relatively quantifiable
impacts on it; the literature on economic impacts of climate change so far, however, is inclined to production
and productivity on agricultural sector. Even on this line
we do have very limited literature assessing the indirect
impacts accruing to change in price and comparative
advantage. Next to agriculture, the fast growing literature
on the impacts of climate change has made attempts to
assess the impacts of climate change on human health.
In reality, however, the economic impacts of change in
the earth climate go beyond the agriculture sector. Reference [5], for example, found the impacts on (non-agricultural) industries and investment to be high and statistically significant on poor countries which eventually
Copyright © 2012 SciRes.
is associated with a 1.1% fall in economic growth in poor
countries for each additional 1˚C. Reference [6] documents a –2.2% production change in the transportation
and communication sector for a unit of additional degree
Celsius in 28 Caribbean and Latin American countries.
Reference [7] showed the positive correlation between
climate shocks and export performance. Ignoring the
production and productivity impacts of climate change
on other economic sectors, therefore, will understate the
economic impacts of climate change which in turn affects the mitigation and adaption responses.
Motivated by this gap, this paper attempted to review
the scarcely available literature on the economic impacts
of climate change on some selected non-agriculture industries. It was attempted to derive the ways through
which climate change can affect the non-agricultural industries. Though climate change can also positively affect the non-agriculture industries (e.g. through new taste
and preferences for some goods; new markets for technologies) we were biased towards the negative aspects.
Add to this, the paper is based on some selected case
studies on some geographical areas as illustrative examples.
2. Ways through Which Climate Change
May Affect Non-Agriculture Industries
Reference [5] which used annual variation in temperature
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Economic Impacts of Climate Change on Secondary Activities: A Literature Review
and precipitation over 50 years (1950-2003) on 136 panel
of world countries reported that there is deleterious effect
by climate change on economic growth (in poor countries particularly). Accordingly, there was significant loss
in industrial output too. They found that +1˚C increase in
temperature reduces growth in poor countries (but not in
rich countries) by 1.1 percentage points. The cumulative
growth effects will even grow to –1.3% and –1.5% to
–2.01% if we include one and three, five, or ten lagged
temperature effects respectively. A 1˚C higher temperature in poor countries is not only associated with 2.44
percentage points lower growth in industrial output but
also with –3% growths in investment again in poor countries in addition to increased probability of political instability (riots and protests).
The economic impacts of climate change won’t end by
reducing production in both agricultural and non-agricultural [6], growth of national output and industrial output [5], and exports [7]. It also extends to distributional
effects. National per capita income is observed that, based
on 2000 year cross-section data, to fall by 8.5% per one
degree Celsius increase in temperature [8]). In fact, [8]
documented, temperature alone can explain 23% of the
variation in cross-country income today.
Reference [6], which looked at 28 countries of Caribbean-basin reported that the output loss in non-agricultural (wholesale, retail, restaurants, hotels, mining and
utilities, and other service sectors) production to be 2.4%
compared to a 0.1% loss in agricultural production (agriculture, fishing and hunting) for a unit degree Celsius
increase in temperature. Though statistically insignificant,
[6] documented that the loss in non-agricultural production is 29 times than that of loss in agricultural production. There is even difference among the non-agricultural
business included in [6]. While wholesale, retail, restaurants, and hotels respond significantly (–6.1%); mining
and utilities, and other services respond –4.2% and –2.2%
respectively for one degree Celsius increase in temperature. The response of agricultural production (agriculture,
fishing and hunting), however, was moderate (–0.8%) in
Central and Latin America. Reference [6], further, draws
our attention to an interesting point that the loss even will
be magnified if we do look at the relative economic contribution of the industries in the region. While the industries with tremendous loss (wholesale, retail, restaurants,
other service sectors) constitute on average 55.4% of the
region’s value added GDP; the agri-business (agriculture,
fishery and hunting) contributes only 10.5% of GDP in
the region. One, then, can easily estimate the economywide loss due to impacts on non-agricultural production
compared to agricultural production. Twenty-nine folds it
is [6].
The studies above suffice us to conclude that the economic impacts of climate change on non-agriculture proCopyright © 2012 SciRes.
duction and productivity is also immense and quantifiable so that should be given attention. Assessing and
quantifying the impacts on secondary and tertiary level
of economic activities, however, is too complex and tiresome. Partially, it needs understanding the inter linkage
between the primary industries and secondary and tertiary level of economic sectors and the product, financial,
and factor markets of these industries. Add to these, assessing the impacts on economic activities other than
agriculture are complex as ways through which climate
change affects these economic activities are many and
can’t easily be modelled.
Herein below, we have depicted the conceptual framework in which the climate change may affect the nonprimary industries (i.e. manufacturing and service industries) based on the literature followed by discussions on
some selected industries on each channels under Section
3. Though we should acknowledge that Figure 1 is very
simplified representation, we do believe that it will give a
sense for the reader two main messages. First, the ways
through which climate change affects non-agriculture
sectors are many compared to channels on agriculture
and human health. Second, the ways are interdependent
and are at multi-stages. Both of these make the assessments as well as reviews complex and tiresome.
2.1. Impacts through Labour Productivity
Labour is a crucial element in every production process.
Both of its quantity (say numbers of working hours) and
quality (skill and productivity) are essential. Any factor
that affects these two characteristics of labour (quantity
and quality) affects production and profitability of the
industry. To be productive a labour should be healthy
enough both mentally and physically. Any impact on
labour health (mortality and/or morbidity), therefore, is
transmitted to the non-agricultural industries. These can
be seen as direct effects of labour productivity due to
climate change.
There are four main lines in which climate change affects human health: 1) increase in mean temperature by
itself results/exacerbate some diseases such as kidney
stone [9]; 2) extreme weather events (such as heat waves,
cold waves, and storms) increase prevalence of some
diseases such as cardiovascular and heat stress [10]; 3)
temperature, precipitation, and wind variability affects
the reproduction, spatial and seasonal distribution of
some disease causing vectors (such as mosquito) and
bacteria (as in food poisoning to cause salmonella) [11,
12]; and 4) indirect effects through drought (escalating
water scarcity and malnutrition), flooding (death and
personal injuries), and tropical cyclones (death and injuries). Shortly, climate change contributes to both mortality and morbidity rate of human beings which in turn has
critical role on labour productivity (in economic terms)
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Economic Impacts of Climate Change on Secondary Activities: A Literature Review
41
Climate Change
Change in mean weather factors
e.g. - change in mean annual temperature, change in mean
annual precipitation
Direct
Human health
Sea level rise
Agricultural production and productivity
Change in frequency, duration, and intensity weather events
e.g. - heat waves, cold waves, wildfires, flash flooding
Indirect
Product markets
Labor markets
Financial markets
-
Labor productivity
Repercussion effects
-
Higher wage demands due to increased occupational health risks
Increased cost of insurance due to risk and uncertainty
New taste and preferences for acclimatization
purpose
etc.
Non-agriculture sectors
Manufacturing
Hotel, tourism
Transport
etc.
Figure 1. The ways through which climate change may affect the secondary and tertiary level of economic sectors.
and work capacity (in psychological sense) [13].
If body temperature, for example, is not being balanced by external cooling device, heatstroke (if greater
than 39˚C) and a threat to life (if greater than 40.6˚C)
may happen [13]1. Moreover, most ergonomic studies,
based on laboratory and observational surveys, agree that
most forms of human performance deteriorate under levels of thermal stress beyond a threshold [6]. This concern
is especially important for the manufacturing sector
1
See the same paper for detailed estimation of change in labor productivity across regions under A2 scenario for the periods 2020s, 2050s,
and 2080s in which trends towards less labor-intense work and no specific adaptation of workplace conditions to climate change are assumed.
Copyright © 2012 SciRes.
which involves working with machines which themselves let heat out in factories. According to [14] any
extended peak heat stress period with and more than
35˚C wet bulb temperature will result hyperthermia in
humans and other mammals which perturbs the metabolic system. Heat stress may eventually alter life style
and working hours and days [14]. There are also syndromes associated with excessive fluid loss. Low urine,
which leads to kidney stone, is one of such diseases. A
study by [9] has discussed climate-related increase in the
prevalence of urolithiasis in the United States. The study
has reported in the same paper that there will be expansion in “kidney stone belt” which bring up the fraction of
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Economic Impacts of Climate Change on Secondary Activities: A Literature Review
US population under risk of kidney stone disease from
40% in 2000 to 56% and 70% in 2050 and 2095 respectively. Under intermediate severity warming scenario,
SRESa1b, climate change related increase in prevalence
of nephrolithiasis (kidney stone) will reach 1.6 to 2.2
million lifetime cases by the year 2050 which in turn
breeds additional expenditure of USD 0.9 to 1.3 billion
(at 2000 price) per annum. One can imagine the opportunity cost of such extra costs associated with a single case.
An interesting study by [6] which looked at the impact of
thermal stress, due to increased mean temperature, on
labour productivity and hence on output production and
productivity based on 28 Caribbean-basin countries (Caribbean and Latin American countries) summed up that
the significant loss in wholesale, retail, hotels, and other
services (–2% from the economy-wide loss of –2.5%),
which is more than 20-fold compared to losses in agriculture, fishing, and hunting (–0.1%), shows the centrality of loss in labour productivity in explaining fall national output due to climate change in contrast to the
dominant view that the later always happen due to fall in
agricultural production which in turn has repercussion
effect to the whole economy. Production’s weak dependence to temperature transits to strong dependence occurs around 27˚C - 29˚C daily average temperature
(which roughly corresponds to ‘wet bulb globe temperature-WBGT’, > 25˚C, under normal sea level) [6]. This is
a threshold level of thermal stress in which human performance starts to deteriorate as evidenced by many ergonomic studies [6]. Reference [6] also reported that in
regions where the daily average regularly exceeds the
WBGT labour-intensive industries exhibit greater economic loss. As a result, it is reported that the response of
output growth to a change in temperature is similar to
labour productivity [5,6].
Reference [12] which briefly discussed the impacts of
climate change for UK in the 2050s reported heat related
death in UK may increase to 2800 cases per year though
it may be offset by decrease in deaths related to cold
waves. The heat wave in August 2003 in Europe has
caused 1500 extra deaths in Northern France and 2000
extra deaths in England and Wales [12]. The death toll is
reported to be about 50,000 in the whole Europe (Bruker,
2005 as cited in [10]). The damages owing to storms and
tornados are also formidable. Debris and falling trees and
buildings will increase personal injuries. The Hurricane
Katrina of 2005 in the US caused about 1800 deaths
while 700 fatalities are reported due to the 1995 heat
wave in Chicago [10]. Heat waves in 2006 have killed
around 200 and 1000 peoples respectively in the US and
the Netherlands [10]. Mortality and morbidity associated
with heat waves are also most common in India [10,11].
Flooding, ultraviolet radiations and droughts another
class of consequences of climate change, is also reported
to cause mental health deteriorations mainly associated
Copyright © 2012 SciRes.
with personal and economic stress. The probability of
diseases such as skin cancer and cataracts will also increase with ultra violet radiation (UVR) which is due to
ozone depletion. Climate change also affects the reproduction, and spatial and seasonal movement of some
vectors (such as mosquito) which in turn increases the
incidence of vector-borne diseases such as malaria and
dengue. There may be re/establishment of malaria in
currently malaria free regions. Reference [12] has documented such threat for UK. High temperature may also
increase the possibility of food poison to which effect
cases related to salmonella infection each year increases.
All these, indirectly, cause the private as well as the
public sector to incur additional cost of providing information, surveillance programmes, increase expenditure
on inbuilt environment, increase in health and social service infrastructure (and hence increase in opportunity
cost of health investment), and further research and policy consultancy on the issue.
If the stress and fall in performance continues many
industries will lose in long run as it does need either to
hire new employees (which bring extra cost of recruitments and training) or fall in gross revenue due to less
productivity of labourers. Under A2 climate change scenario, [13] documented, the absolute loss in population-based work capacity will range from 11% to 27% in
South East Asia, Andean, Central America and the Caribbean.
In closing, climate change through its effects on mean
temperature and precipitation, frequency of extreme
weather events, droughts, flooding, and wind storms, will
pose a real challenge to labour productivity and hence
any sector which uses labour. Presuming that labour is
being paid based on its productivity in the primary sectors, as in a standard macro and labour economic analysis,
the manufacturing and service sector will be affected not
only due to mortality and morbidity to labourers engaged
within the sector only but also due to fall in productivity
of labourers in the primary sector. Put another way, by
presuming labour will be paid based on its marginal
productivity, as in any standard economic analysis, demand for manufactured goods and services will fall due
to fall in farm/agricultural income.
2.2. Repercussion Effects
Climate change does also affect the non-agricultural industries through its effects on the climate dependent primary economic activities. Food and brewery, textile, and
other natural resource dependent (e.g. timber and pulp
and fishery) are among such industries through which
climate change can have repercussion effects on nonagriculture economic activities. Because the production
process in these industries is also (more of unskilled)
labour intensive, the impacts, are double—through both
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Economic Impacts of Climate Change on Secondary Activities: A Literature Review
labour productivity and repercussions. See Sections 3.2
and 3.3 for more on repercussion effects.
2.3. Indirect Impacts through Markets
Climate change also affects the manufacturing industry
through markets. It affects through both product and financial markets.
Our consumption, dressing, and other ways of life will
always be shaped by our physical environment. Climate
change, thus, affects taste and demand of goods and services. If temperature increases, for example, the taste for
wool product will fall. Reference [15] which assessed the
economic impacts of climate change on Australian wool
industry has reported both wool production and prices
have been falling since 1987. Climate change generally
affects life style [14]. Of course, there are gains, too, to
the industry through increased taste and preference for
some products—for example, Air Conditioner, Heater,
light clothes, and likes. New market opportunities are
available too. We have seen construction industry will
benefit from reconstruction and relocation after destructions caused by cyclones and flooding. Again the market
also needs now new design and engineering.
It is plain fact the any industry needs financial loan
and insurance for its business. The manufacturing industry, too, needs insurance for the risks and uncertainty
associated with the industry. The more risky and uncertain the industry you are engaged with the higher is risk
premium needed to be paid. Therefore, those industries
which are highly affected by weather changes (e.g. construction and housing industry); produce perishable goods
and services (e.g. hotels, restaurants, food and brewery);
tourist destinations (e.g. beach) will be subjected to high
risk premium which in turn affects the production cost
for the industries. It will also be very difficult for industries (whose business is sought as risky and uncertain)
getting financial loans.
We can also look at the labour market. Increased risks
and uncertainties associated with working environment
does mean increased occupational health risks which in
turn provokes workers to seek better wages and salaries
to reduce gross profit of manufacturing industry. On the
other hand, non-agriculture industries particularly those
using unskilled labour may benefit from cheap labour
due to increased rural-urban migration which is pushed
by fall in agricultural production and productivity due to
climate change.
3. Some Selected Non-Agriculture Industries:
For Illustration
3.1. On Construction and Housing Industry
Climate change alters the magnitude, intensity and frequency of climate variables. The magnitude, pattern, inCopyright © 2012 SciRes.
43
tensity and loads of mean annual temperature, precipitation, wind (moisture, movements, direction) will be different with change in the earth climate. These events, in
turn, affect those industries whose operation is highly
associated with the climate variables.
Construction and housing industry is among them. The
construction and housing industry consists of general
(such as residential and commercial buildings), heavy or
civil engineering (such as bridges, high ways), and industrial (which involves building and/or assembling infrastructure, such as electric power works) constructions.
Significant variations in variables of climate (temperature, precipitation, and wind) have tangible effect on the
process and engineering of construction. A rainy winter,
hot summer, and windy spring affect the construction
process. Such events, for instance, delay the contractual
period which in turn breeds additional costs to the contactor. The delays in turn affect the reputability and
goodwill of the real estate firms. On the other hand,
coastal erosion, subsidence, flooding, and change in
draining systems influence the choice of construction site
to which effect geological survey costs increase. Add to
these, increase in temperature and extreme weather
events increase the depreciation rate (wear and tear of
buildings) of existing structures. Both have an immense
implication to a businessman running in real estate. For
instance, significant loss in production of construction
(–2.2%) in hottest season (September, October, and November) was reported in Caribbean and Latin American
countries [6].
The other impacts to this industry come through adaptation costs. The first is that the construction and housing
industry needs to reengineer and/or put new designs to
make the buildings resilient to loads from extreme climatic events. The increase in occupational health risk
also decrease the profitability of the industry through
increased wage to compensate the risks associated with it.
The industry, moreover, will be subjected to high risk
premium. If the impacts are being again immense and
unpredictable there is no ground for lenders not to decline to avail funds to the construction industry as the
former do always prefer risk-free business than risky one.
But, as some studies documented, the construction industry is also beneficiary from climate change mainly
due to construction, reconstruction and rehabilitation of
mass destructions to infrastructure, houses and new settlements which are mainly due to misfortunes due to climate change such as flooding and hurricanes. Because of
the role of reconstruction, [6] documents, construction
output expands +1.4% and +1.4% the year following for
the unit SD2 increases in the Caribbean and Latin American countries.
2
SD measures exposure of countries for (normalized) dissipated wind
energy per unit area.
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Economic Impacts of Climate Change on Secondary Activities: A Literature Review
3.2. On Food and Brewery Industries
Unlike the case of construction and housing industries
where the impacts primarily owe to the change in climate
variables and increased possibility of extreme weather
events; the impacts on food and brewery industries primarily owe to repercussion effects of climate change
through agricultural production and productivity. Note
that by food and brewery we do mean industries which
depend on crop and/or livestock production. Livestock
production is affected due to both the quality and amount
of forage from grasslands and direct effects on livestock
due to higher temperature. Hence, not only the food industry that depends on it (e.g. milk production) but also
those which depend on skin and hide (e.g. leather textile
industry) are highly affected. The impact on the food and
brewery industry still is not even. It depends on the climate sensitivity of the raw materials they are using.
Needless to say, the agriculture is the most vulnerable
sector as climate change is the primary determinant of
agricultural productivity [2,16-18]. It affects both farm
income and food security. Reference [5], which looked at
the association between climate change and economic
growth using annual variation in temperature and precipitation over the past 50 years to examine the economic
impacts of climate change on world economic activities,
found that a 1˚C increase in temperature lowers agricultural output growth rate by 2.37% in poor countries. One
can imagine what the repercussion effects might be if
agricultural output growth falls by such magnitude. A fall
in agricultural output is a fall in inputs for food, brewery,
and textile industries. Reference [7] findings consolidate
the same.
Reference [7] used international trade data to examine
the effects of climate shocks on economic activities running panel data regressions relating the annual growth
rate of a country’s exports in a particular product category to the country’s weather in that year (i.e., its average temperature and precipitation). Accordingly, though
the impacts of developed countries’ export is almost nil,
one degree Celsius warmer in a given year reduces the
growth of a poor country exports by between 2.0 and 5.7
percentage points. We know, of course, what poor countries are exporting mainly. Furthermore, they found that
among the top five export items in the United States in
which climate change affects significantly and negatively,
the four were in food and brewery and textile Industries—dairy products and eggs, leather, foot wear, and
cereals and preparations.
Taken together, the impacts of climate change on agricultural production and productivity is not only confined to the annual agricultural output and income. It
rather go beyond the agricultural sector and the impacts,
through repercussion effects stretches to other industries
whose raw materials directly and/or indirectly is obtained
Copyright © 2012 SciRes.
from agriculture. Rather than widening our discussion
over many industries, we picked here the wine and sugar
industries as example. We, however, should acknowledge that two sectors are not sufficient enough. One,
therefore, can find many studies on the economic impacts
of climate change on agriculture, especially on crop production, in many countries.
Wine (whose raw material, grape, mainly grows between 30˚N - 50˚N and 30˚S - 40˚S) will be affected
much as grapes are highly climate sensitive crops [19].
The same study, basing the European, North American,
and Australian wine industries document that an increase
in temperature as what is reported in the Fourth Assessment Report of Intergovernmental Panel on Climate
Change (IPCC, 2007: 1.5˚C to 5˚C) will result significant
shift in grapes and wine viticulture growing regions so
does wine production [19]. This particularly may affect
low latitude countries. Reference [19] further went to
show that the impact on the vine and wine composition.
By presuming a quadratic effect of temperature on wine
quality in some regions (25 regions out of 30) and fruit
variety (red) show positive gain while some other regions
(5 out of 30) and fruit type (white variety) loses at current temperature. Therefore, [19] argue, many wine producing regions may be being benefited from [theoretically] optimum temperature these days. A further increase in temperature, however, does imply fall in quality
of wine production. It, however, may create new business
opportunities for new (higher latitude) areas. For example, a study by [20] which measures the effect of year to
year changes in the weather on wine prices and winery
revenue in the Mosel Valley in Germany, a well-known
wine growing region between 49.61˚ and 50.34˚ latitude,
found that a 1˚C temperature would increase wine growing farmers’ income by 30% using the Ricardian approach.
Rainfall, radiation and temperature are the three major
determinants of sugar cane production. In countries like
Fiji, where sugar industry is a prominent sector in an
economy, the impacts of climate shocks (such as droughts)
will be tremendous and will shock the whole economy.
For instance, the production of sugar in the same country
fell from 293,653 tons to 255,703 tons due to droughts
[21].
In sum, many studies, on both crop and livestock production, have showed that climate change affects any
form of agriculture though the degree, direction, and the
ways it affect may vary from crop to crop; from region to
region; and from season to season. The impacts, however,
won’t end there. Climate changes through its repercussion effects of agriculture will affect the production and
productivity of food and brewery industries. With increasing world population, the impacts on such industries
are of special interest of research.
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Economic Impacts of Climate Change on Secondary Activities: A Literature Review
3.3. On Timber, Fishery and Mining and
Quarrying
Timbering, fishing, and mining are other major economic
sectors whose production and productivity highly hinges
on the health of the ecosystem. These economic sectors
are also primary economic activities by level of production even though are different in their nature of production. Therefore, a comprehensive review on the economic
impacts on these industries should incorporate from the
direct bio-physical relationship between climate change
to the final supply of goods and services which directly
or indirectly take the resources produced by these sectors
as raw materials for further processing. For example, any
impact on fishing will be transmitted to the fish food
industries as we discussed in the earlier sub-section. Impacts on timber production can also be taken as a proxy
for impacts on furniture and pulp industries. Such comprehensive studies, assessing the impacts from the biophysical relationship to the supply and price of final
goods and services, however, were hardly available. The
discussions herein below, therefore, are based on the
impacts based on bio-physical dependence of the sectors
with the climate and climate change.
The impacts of climate change on the timber industry
have been being assessed since a decade ago. The findings of the studies, however, are mixed depending on the
region of study and the way in which climate change
may affect the timber industry. The net effect to a specific region hinges on the balance between the impact of
climate change on existing forest stocks (due to dieback,
outbreak of pests and diseases, forest fire, and extreme
events) and gain in productivity (due to warmer temperature, longer growing seasons, and increased CO2
concentration) [22-24]. See, for example, [25] for more
on the negative impacts of climate change (through spread
of plant insects, hurricanes and heat waves, and increased
likelihood of forest fires) in the USA, Canada, Europe
and Australia. Add to this, many ecological and economic literature on the arena found that climate change
will shift geographical distribution of tree species and
alter productivity. While high latitude forest may move
to tundra; mid latitude forests are affected due to dieback
and change tree species; low latitude forests, however,
gain due to increase in productivity as short rotation is
there [23]. There is one thing in common, however. Climate change increases forest productivity and hence
there will be more global timber supply to which effect
world consumers will benefit from lower timber price
which in turn may increase welfare increase may range
from 2% to 8% [23]. Note that impacts of climate change
on other forest product dependent industries (e.g. pulps
and paper) follow the same track.
Another natural resources dependent sector is fishery.
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45
Climate change has both direct and indirect impacts on
fishing sector. Future production of both inland and marine fish is likely to be affected by the increased frequency and intensity of extreme climate events [26].
Climate change affects the physiology, behaviour, growth,
development, reproductive capacity, mortality and movement of fish. It may also help to competitor species, such
as Pacific oyster (Crassostrea gigas), and pathogenic
species to spread [26]. Reduced precipitation and increased evaporation of inland lakes is detrimental to fish
production. The uncertainty and lack of data to capture
the impacts coupled with difference in impacts on different regions and fish species, and change in socioeconomic factors (population, fishing activity, and consumer demand) make the argument incomplete to substantiate and quantify climate change related threats for
future fishery production and supply. Changes in fish
production can be addressed with policies that have elements of flexibility, adaptability to new information
about the marine system, reflexivity (i.e. continuous evaluation of the consequences of management in relation to
targets), and transparency in the use of information and
governance [26].
Climate change has an implication for another primary
resource industry—mining and quarrying. The change in
climate affects extraction, production and shipping process in the mining and quarrying industry. It does also
affect exploration and discovery efforts [27]. Reference
[27], citing previous studies, document that climate
change affects operation process of mining (through water scarcity, for water dependent mining such as sodium
sulphate). The increased temperature and humidity add
more to the concern. Warmer temperature; change in
rainfall patterns; frequent extreme events; and sea level
rise, inter alia, will increase the occupational health risks
associated with mining. Such effects in turn affect the
mining and quarrying industry through labour markets
(i.e. increased wage demand) and financial markets (i.e.
higher risk and insurance premiums) [27]. The shipping
of the freights, for example, will be affected in those regions where ice transportation is being used. For instance,
in Diavik diamond mine in the Northwest Territories
spend about $11.25 million extra on transporting 15 million litters of fuel air due to premature closing of their ice
road due to unreasonably high temperatures [27]. As the
mining processing operations are water intensive, the
processing operations are also climate change vulnerable.
An increase in climate-related hazards (such as forest
fires, flooding, windstorm and likes) will affect the viability of mining operations and potentially increase operating, transportation, and decommissioning costs [28,
29]. Worse is that, as it is reported for the case of Canada,
most mine infrastructure was built based on presumption
of climate won’t change which in turn make adaption
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46
Economic Impacts of Climate Change on Secondary Activities: A Literature Review
plans limited [27,30,31].
4. Limitations of the Study
The review of the existing literature on the economic
impacts of climate change on non-agriculture industries
was biased to negative impacts. An increase in mean
annual temperature may reduce the taste and preference
(and the demand) for wool products but it will increase
the demand for such light and nylon clothes. It may affect the sheep production and productivity negatively but
positively the cotton production and productivity. Adaptation is natural to human beings. Adaptation, how- ever,
at both firms and national level, was not taken into account here. The paper does also focus only on some randomly selected non-primary industries as illustrative
examples. We, therefore, disclaim that the paper is comprehensive review on the economic impacts of climate
change on the secondary and tertiary industries as such.
It merely is intended to provide alternative insight on the
economic impacts of climate change on economic sectors
other than agriculture.
5. Conclusions and the Research Need
Climate change is a leading agendum today. Its impacts,
vulnerability and adaptation issues have drawn many
scholars from the political, academic, and research sphere
[4,5]. The economic literature on the impacts of climate
change, however, is inclined to the impacts on agricultural production and productivity. There is also thin but
growing literature on the impacts of climate change on
human health. This, however, make the economic impacts due to climate change incomplete as non-agriculture
industries (manufacturing and services industries) are
also being affected. Moreover, impacts on these sectors
are high in absolute terms as the two industries contribute
to more to national GDP in absolute terms than agriculture in many countries [6].
This review paper was motivated by this gap in the literature. It was aimed at providing a general highlight on
the ways in which climate change may affect the nonagriculture industries rather than providing a detailed,
technical, quantitative, and comprehensive analysis. Among
others, the case of construction and housing industry;
food and brewery industry; textile industry; timber and
pulp industry; fishery; mining and quarrying industries
were reviewed. Accordingly, there are four main lines in
which climate change challenge the non-agriculture industries: 1) direct (through variations in climate variables);
2) supply of raw materials from primary sector, agriculture and natural resources; 3) through changes in labour
productivity; 4) and indirectly through markets (through
risk and insurance premium, new market opportunities,
and new taste and demand, and labour markets). ApparCopyright © 2012 SciRes.
ently, like in the case of impacts on agriculture and human health, there are likely regional win- ners and losers
from climate change.
Future research on the topic, however, should identify
and quantify the immediate and direct impacts of climate
change (particularly in long-run) on wealthy nations
along with transmission mechanisms of impacts from
poor to rich countries. World, in reality, is more integrated than ever. Either negative or positive effects in
poor countries soon will be transmitted to the whole
world. World oil price is a good example here. Its supply
shock, if it happens, will affect the whole globe. Transmission mechanisms; from local to national, from nation
to region and then globe, sector to economy wide, of
course, should explicitly be indentified. A loss in agriculture production and productivity, for example, may
increase population movement say from poor to developed countries which in turn has political, social and
economic implication.
The research so far on the arena is more or less concentrated on the impacts of increased temperature on
output production and/or factor productivity. But, temperature is only one of climate variables. There are few
studies on the impacts of climate change via altered precipitation amount and pattern. The economic impacts of
increased frequency of extreme weather events such as
hurricanes and flooding are less assessed compared to
that of temperature. Earlier studies are also more of sector-wise than economy-wide impacts: on agriculture, on
human health, on crop production, on livestock production, on forestry, on fishery, on water, and likes. Future
studies shall concentrate on economy-wide impacts as it
will increase the concern on climate change among stake
holders and will have better policy implication.
Again, future researches should concentrate on longrun than simply working on short-run implications of
increase in temperature and/or precipitation. Studies should
concentrate on long term time framework not only for the
sake of calibrating the lagged effects but also economies
usually recovery slowly which in turn implies negative
economic growth [5] and/or loss of property due to cyclones, for example, will have far reaching consequences.
Increased temperature, for example, was found to affect
investment [5,6] and political instability [5] both of
which are critical for sustainable economic growth and
welfare improvement. Reference [6] even showed that
the sum total of (indirect) effects for the remaining (infinity) years to be 22.5% if the production loss in this
year to be 2.5 % (direct) presuming that output in the
year t is approximately 0.9 of year t-1 with a unit increase
in temperature. Reference [5] has put two limitations of
depending of short-run fluctuations data. They pinpointed
the results may be different if someone considers the
long-run as there may be adaptation. They also docuLCE
Economic Impacts of Climate Change on Secondary Activities: A Literature Review
mented that the cumulated effect of temperature becomes
stronger as more lags are added which in turn suggests
the effects of temperature shocks strengthen over time
rather than diminish [5]. The other con of focusing on
short run is that it will understate the physical impacts of
climate change and it won’t consider the interplay between the physical impacts themselves. Therefore, uncertainty in interplay and relative size (contribution) of
each climate factor to be assessed well; the time horizon
should be stretched out. Again focusing in short-run impacts leaves only the poor countries to be the main losers.
In closing, therefore, future research on the topic should
indentify the transmission mechanisms—from regions to
regions, from sector to sector, from sector to economywide; should focus on the long run too; and should indentify the interplay and relative contribution of different
climate factors (temperature, precipitation, wind storms).
Put another way, studies on the economic impacts of
climate change should be stretched out to gauge some
more economic activities; possible long term effect; and
some more channels through which climate change impose challenges to human beings. It is through this that
the impacts can be estimated better; reports echoing only
poor nations will be affected can get lesser and lesser;
and can enhance political commitment on mitigation and
adaptation activities.
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